South Africa: SAA Placed Under Business Rescue

The Board of South African Airways (SAA) has adopted a resolution to place the company under business rescue.

"This is the optimal mechanism to restore confidence in SAA and to safeguard the good assets of SAA and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner," Public Enterprises Minister Pravin Gordhan said in a statement on Wednesday.

On Sunday, the Minister announced government's intention to introduce a radical restructuring process at South African Airways ( SAA) in order to ensure its financial and operational sustainability and in so doing reduce its ongoing impact on the fiscus.

"Our desire is that the restructured airline will mark the beginning of a new era in South African aviation and must be able to bring in millions more tourists into SA; help create more jobs in tourism and related sectors of the economy and work with other African airlines to underpin and service the integration of African markets and improve dramatically intra-African trade and travel," Gordhan said.

He said it is important that the reliance on government finances be reduced as soon as possible and to minimize disruption to SAA services, customers, staff and other stakeholders.

The Business Rescue will incorporate existing lenders to SAA providing R2 billion as post commencement finance (PCF) guaranteed by government and repayable out of future budget appropriations in order for the business rescue process to commence and to enable SAA to continue to operate.

The Business Rescue will also incorporate the following:

Government, though National Treasury, providing an additional R2 billion of PCF in a fiscally neutral manner.

The prevention of a disorderly collapse of the airline, with a negative impact on passengers, suppliers and other partners in the aviation sector in SA.

It will provide an opportunity to critically review the cost structure of the airline, while simultaneously attempting to retain as many jobs as possible. This reality was clearly understood in the recent wage negotiation process between the unions and the company.

This approach also provides a structured opportunity to reorganize the state aviation assets in a way in which they are better positioned to be sustainable and attractive to an investment partner.

"It must be clear that this is not a bailout. This is the provision of financial assistance in order to facilitate a radical restructure of the airline," the Minister said.

The business rescue process will commence as of 5 December 2019.

"A business rescue practitioner will be chosen to take charge of the business and perform the function of operating the airline with the assistance of management. The practitioner will also undertake such rationalizations as are necessary.

"This set of actions should provide confidence to customers of SAA to continue to use the airline because there will not be any unplanned stoppages of flights or cancellation of flights without proper notice should that be necessary," the Minister said.

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